Tax season 2022 is officially here. And with the IRS continuing to grow overwhelmed by its increasing backlog, it’s shaping up to be another chaotic one.
Luckily for taxpayers, the CPAs and tax experts at Boxelder Consulting are always just a phone call away. Voted one of Denver’s best tax services in 2022, our team has gathered all of the practical information you need to ensure you’re primed for a year of financial wellness.
In today’s guide, we’re reviewing important updates to popular tax credits for this year’s filing season. 2021 saw the introduction or continuation of several pandemic relief programs — such as economic stimulus payments and the expanded Child Tax Credit — that might affect how you file your taxes.
As always, the best way to ensure you’re making use of every incentive available to you is to work with a licensed tax professional who knows the code like the back of their hand. Reach out to our team today to review your case and discover new opportunities for reducing your tax bill.
In the meantime, here is some important information regarding changes to popular incentive programs for 2022:
Expanded Child & Dependent Care Credit
The American Rescue Plan Act, enacted on March 11, makes the Child and Dependent Care credit substantially more generous for 2021.
The credit benefits those who are working or going to school and paying for the care of a child under 13 or another family member who is not mentally or physically able to care for themselves. It is based on one’s income and calculated as a percentage of the qualifying expenses they incurred.
Under ARPA, the credit can be used toward a more significant refund (up to $4,000 for one qualifying person and $8,000 for two or more qualifying persons) for the tax year 2021. This means an eligible taxpayer can receive this credit even if they owe no federal income tax.
Expanded Child Tax Credit
The maximum value of the child tax credit is temporarily $3,000 per child ages 6 through 17 and $3,600 per child ages 5 and under.
Unlike in prior years, the credit is fully refundable for 2021, meaning taxpayers can get the maximum amount of the credit even if it exceeds their federal income tax liability for the year.
The biggest change for this year, however, is that the IRS made advanced monthly payments on that credit from July through December. So taxpayers may already have received about half of their credit and can claim the other half on their return.
To help with this calculation, the IRS will send you a letter (Letter 6419) detailing the amount you’ve already received. DO NOT THROW THIS AWAY. You must use it to reconcile how much more you are due. The amount may be different, based on whether your family or income situation changed in the last two years.
For instance, if you had another child in 2021 you may be entitled to more than your advanced payments reflect.
Or you may have gotten paid too much if, for example, you’re divorced and changed which parent could claim a child on their tax return. The same might be true if you made more money in 2021 or one of your children turned 18. Whether you have to “repay” the excess you got — which most likely means you just claim less of a credit for the first half of last year — depends on your income.
Those making less than $40,000 ($60,000 if married) get full repayment protection. But if you’re making more than $80,000 (or $120,000 if married) you may have to repay.
Recovery Rebate Credit for Missed Economic Impact Payment
Since the pandemic began, the IRS has sent out three rounds of Economic Impact Payments to eligible Americans, the last of which went out in 2021.
If you received that third payment, the IRS will send you a letter (Letter 6475) detailing how much you were paid. You should report that information on your return.
But if you didn’t receive the third payment — or perhaps now qualify for more than you were paid because your income or family situation changed — you should review whether to claim the refundable recovery rebate credit.
If your 2021 income would have actually disqualified you from all or part of the payment, you’re still in luck: you do not need to repay the third stimulus payment.
Expanded Earned Income Tax Credit
For 2021 only, low- and moderate-income wage earners who do not have qualifying children may be eligible for a larger Earned Income Tax Credit than before.
The American Rescue Plan nearly tripled the maximum credit available to $1,502.
To qualify, your earned income for 2021 must be below $21,430 ($27,380 if married filing jointly). And on a permanent basis for all EITC recipients, the amount of investment income you may have on top of your wages and still claim the credit increased to $10,000.
The credit is also available for the first time to childless workers as young as 19 and workers 65 and older.
For people who do have qualifying children, if they earn $57,414 or less, they may qualify for the EITC. And depending how many kids they have, qualified taxpayers can get a maximum credit of $6,728.
Contact Boxelder For A Stress-Free Tax Season
If you have any questions at all about the tax filing process, don’t hesitate to reach out to our team. Even if you just need a little advice, we’d be happy to give you a free consultation.
Sometimes, all you need is the peace of mind that you’re making the right decision. We hope we can provide that to you.